[Chart courtesy of MarketWatch.com]

1. Moving the markets

The pattern, that early ramps get wiped out during the session, has been occurring with such regularity, that we could conclude that they are merely dead-cat-bounces, i.e., hopeful leaps with no connection to reality.

Today was no exception. The chart above clearly demonstrates that occurrence and here again, the major indexes got spanked, despite a late day rebound above the unchanged line.

As ZeroHedge pointed out, today is the biggest 5-day drop for stocks since 3/20/20, with the S&P 500 now clearly having lost its 4k level:

• Nasdaq is now down over 29% from its highs, Dow down over 17%, and the S&P almost 14%.

Today’s April CPI report of 8.3% YoY, while an improvement from March’s 8.5%, was higher than the expected 8.1%. Hope that inflation may have peaked, was nothing but wishful thinking, and that reality set in later and pulled the major indexes into the red.

As I have repeatedly said, the Fed is way behind in its attempts to curb inflation, and a far more aggressive approach is needed to not only conquer the price increases we are experiencing now—but also to get a handle on potential hyperinflation and a cost-of-living crisis. A puny 0.5% hike in the Federal Funds rate will not do it.

Bond yields spiked but pulled back late in the session, with the 10-year retreating from its 3.06% intra-day high to close down 7 bps at 2.93%.

Crude Oil bounced back above $100, gold had a decent showing, but is still trying to climb back above its $1,900 level, and retail gasoline prices set a new record. More astounding was the price of Diesel fuel, which absolutely exploded.  

Having said all that, the dreaded “S” word, as in Stagflation (inflation + no growth), is making the rounds again, with Bloomberg producing this chart as evidence.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early +500-point Dow relief rally died on the vine, as the index suddenly reversed course and dove into the red by -150 points before chopping and flopping around the unchanged line into the close. This marked the Dow’s 4^th consecutive decline.

The S&P 500 and Nasdaq followed a similar pattern but managed to eke out a green close with the former reclaiming its psychologically important 4k level. Overall, it appeared that the bearish mood has not subsided, it has merely taken a pause ahead of tomorrow’s all-important CPI number.

A variety of Fed speakers offered some much-needed hope to the beaten down bond- and stock investors with bon mots like “50bps-hikes are base-case, not sure if need to raise rates above neutral,” and “this was not a shock-and-awe Volcker moment.” This had the desired effect to prop up stocks, if only temporarily, and pulled bond yields off their lofty levels with the 10-year dropping back a tad below its 3% level to close at 2.994%.

ZeroHedge pointed out that financial conditions have tightened significantly and are now at the same level where Powell flip-flopped back to dovish in 2018. Will history repeat itself? Tomorrow’s CPI may give us a hint.

The US Dollar went sideways, Gold was held below its $1,900 level, while Crude Oil slipped below the $100 marker. US Retail Gasoline prices surged to a record new high but, as ZeroHedge explained with this chart “it’s still Putin’s fault, right?”

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Not only did last week’s debacle continue this morning, but markets also took a sudden dive during the last hour of trading, with the S&P 500 breaching its psychologically important 4k marker to the downside to close slightly below it and at its lowest in 13 months.

Again, this was a day with no place to hide, as even well-performing sector funds, like energy and commodities, were not immune from the onslaught of selling. Our energy sector position touched its trailing sell stop, which I took as an opportunity to get out of it and lock in some unrealized gains.

Interest rate fears had bonds swinging wildly with the 10-year slipping 9 basis points but maintaining its position above the 3% level. Rising interest rates have crushed the Nasdaq with the index caving another 4.3% today, and now down 27% from its record highs.

While bear market rallies can always develop suddenly, the major trend is to the downside, which had been confirmed by our Domestic TTI on 2/24/22.

As I pointed out, this is not the time to be in equities but to be in cash on the sidelines or in selected sector funds that are undergoing their own bullish trends. The Stagflation risk will be with us, which means that weakness in equities is bound to continue.

If this is not clear, ZH pointed to what happened to the Fang stocks so far:

FB -48%, AMZN -42%, NFLX -75%, GOOGL -25%

Crude oil plunged and gold tumbled, while the US Dollar went sideways and still hovers near its 20-year highs.

All this begs the question as to whether the Fed will fold to save the markets or be serious in its intentions to battle inflation.